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Rowan Companies’ 1Q18 Cost Guidance

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4Q17 drilling expenses and guidance

Rowan Companies’ (RDC) direct operating costs, excluding rebillable items, were $166 million in 4Q17—above the previous guidance of $150 million–$160 million. The factors that contributed to the higher-than-expected costs for 4Q17 were increased reserves related to the dispute between the workers’ union and the labor providers in Trinidad. The company also revised the retiree medical plan.

In 2018, Rowan Companies expects its direct operating expenses, excluding rebillables, to be $600 million–$625 million—down from operating expenses of $661 million in 2017. The company tightened and moved to the lower end of its previous guidance.

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General and administrative costs

Rowan Companies’ SG&A (selling, general, and administrative) expenses in 4Q17 were $34 million—about $9 million higher than $25 million in the previous quarter. The company expects its SG&A costs for 1Q18 to be ~$30 million. Rowan Companies expects higher-than-normal professional fees. Rowan Companies estimates that SG&A costs during the remaining quarters could average in the low to mid $20 million range. For fiscal 2018, the cost is expected to be $100 million—slightly above the level in 2017.

Peers

Rowan Companies’ expense-to-revenue ratio rose to 60% in 4Q17 from 57% in the previous quarter.

Let’s look at other offshore drillers’ (OIH) ratios. In 4Q17, Diamond Offshore Drilling’s (DO) expense-to-revenue ratio rose to 59.0%. Transocean’s (RIG) ratio rose to 66.0% in 4Q17 from 46.0% in 3Q17. Ensco’s (ESV) drilling expense-to-revenue ratio increased to 73.0% in 4Q17 from 62.0% in 3Q17 and 57.0% in 4Q16.

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